Fixing the Debt Crisis

Obama has come of the points I would include, equity stakes, tax cuts to middle class spenders. But I would also:

Punish CEO’s and other executives. They failed. They get the boot. That’s how the market does it. We should do that here. Take a flat payout of say $2M and not a penny more and walk out the door scott free. Or they can take door #2: a shareholder lawsuit and/or a criminal investigation from the SEC and/or FBI on gross negligence of their fiduciary duty.

Push board reform. These people were asleep at the wheel to get us in this position. Take the bailout and all board members associated with the CEO are out the door pending the work of a Search Committee’s efforts to replace them. Put a time clock on that. Demand that the CEO is never Chairman of the Board nor does he/she have connections to the Chairman.

Push for pension and insurance reform. These speculative assets have no place in people retirement portfolios or backing insurance policies. They require prudence not greed. Period.

Get rid of social engineering around mortgages. To increase home ownership of the indigent, the government should subsidize mortgage payments for the indigent, but that has to be in conjunction with other initiatives like job training to earn a better wage, etc. No more tax entitlements–I mean deductions. People should pay what they can afford. Period. Let the debt markets work as normal.

Focus on how to properly price MBS’s/CDO’s/CMO’s. The government should use all the academic horsepower available in our higher ed institutions to solve this problem. Modern portfolio theory revolutionized the pension industry by redefining the “prudent man.” Theory around these financial instruments, which aren’t inherently bad, can solve this problem as well. If the theory is sound enough, we might consider them for conservative portfolios e.g. pension endowments